Financial Risk Manager Part 1
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Q.3288 While performing a hypothesis test, Albert Khan is told that his analysis suffers from a Type I error. We can therefore conclude that:
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A
Khan rejected the null hypothesis when it was actually false.
B
Khan failed to reject the null hypothesis when it was actually false.
C
Khan failed to reject the null hypothesis when it was actually true.
D
Khan rejected the null hypothesis when it was actually true.
Explanation:
Explanation
A Type I error occurs when the null hypothesis is rejected even though it is true. In other words, the test concludes that there is a significant difference or effect when there is actually none. This error is also known as a false positive. In this case, Khan rejected the null hypothesis when it was actually true, which means that he made a Type I error.
Option A is incorrect. This statement describes a correct decision, where the null hypothesis is rejected when it is actually false. This decision is known as a true positive.
Option B is incorrect. This statement describes a failure to reject the null hypothesis when it is actually false. This decision is known as a Type II error.
Option C is incorrect. This statement describes a correct decision, where the null hypothesis is not rejected when it is actually true. This decision is known as a true negative.
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